Very quiet start to the week in FX with most of the majors holding their Friday closing prices amidst very little news flow and barren economic calendar. With dog days of summer truly here as most of Europe is on vacation while in US the President and Congress are away as well, the prospect of low volatility trade may be with us for the next week or two.

The EURUSD ignored a smattering of soft data including weaker than expected GE IP and slightly lower Sentix numbers to pop back above the 1.1800 level in early European trade but failed to push much beyond that level as the rally ran out of gas. Still, the much-vaunted profit taking move in the pair has yet to materialize. After Friday’s quick dive on post NFP profit taking the pair has found bidders once again and remains well near multi month highs.

Although Friday’s NFP data was solid, the dollar hasn’t been able to convert the impressive fundamental gains into any sort of sustained rally. Part of the problem is that despite robust job growth and decent wage growth, the market remains blase about inflation and therefore skeptical about the pace of Fed’s rate hikes this year.

To that end, this week’s US PPI and CPI readings could prove to be crucial to the fate of the buck. The market believes that the Fed will only start to tighten rates in earnest once inflation pushes above 2%. For now, the forecast calls for CPI to rise only 1.8% on a year over year basis. Still, post-NFP USDJPY has clearly found a short term bottom at the 110.00 level and despite the run up in euro the buck remained well bid against the yen and could make another run at the 111.00 figure as the day proceeds.

Some analysts have pointed out that the pair remains under pressure due to political factors including the turmoil in DC and the prospect of another standoff on the debt ceiling in September – and while those are clearly danger factors down the road, for now, the dollar appears to have stabilized and still looks like it may stage a counter trend rally this week.